| By Mike Hane | Senior Director, Transportation | Chainalytics |
I’ve written a couple times on transportation procurement in a rising market, and with the current state of the market, I figured it was time to revisit the topic and provide an updated perspective.
In the U.S., truckload rates have increased in many lanes by double digit percentages year over year. Shifts in driver preferences, government regulations, historically intensive weather systems, and economic volatility have put a squeeze on available capacity and carriers are leveraging these economic realities into higher rates.
Many times in the past, we’ve heard shippers discuss their wariness of putting out a truckload bid in a rising freight market. They didn’t want to take the risk of getting hit with an increase. But this year we see more shippers expressing an even greater concern over securing capacity and getting their loads covered, so the recent transportation bids are more about limiting and controlling the rate increases while making sure the loads get moved.
If you haven’t bid your freight yet, or are still considering trying to stick with last year’s rates, here are some thoughts to consider:
- When your contracted rates slip too far below the “market” rate, your incumbent truckload carriers are less likely to accept your load tenders.
- If it hasn’t happened already, your incumbents will be coming to ask for increases individually, and you will be negotiating in a vacuum with no competitive real-time pricing to compare their rates against. If everyone is calling you up to change rates, you are better off doing a structured bid than lots of one-off negotiations. Gambling on the volatility of the spot market creates an even higher risk for increased costs and potential service failures.
- While carriers might prefer to never have to do a bid, they certainly remember the shippers who only bid opportunistically when the market is favoring shippers. A consistent sourcing cadence demonstrates to carriers that a company is looking to create/maintain a fair procurement process.
Another thing to remember is that as your network goes through changes, the carriers’ networks are changing even more drastically. For example, a lane that was a perfect match for the carrier last year may no longer be desirable due to volume shifts in their network. Their assets may now require more deadhead mileage to service your lane, and in response they may decline your load tender if a more profitable option is available.
Sourcing events on a regular cadence give you a leg up in interactions and negotiations with truckload carriers, but you must invite new carriers as well as your incumbents in order to find the best mix of rate, service and risk.
- An annual event allows you to find another carrier on your required lane at a competitive rate, rather than increase the incumbent carrier’s rate to the point where they can continue to provide reliable service at a profit.
- Remember that carrier discovery in an ongoing process. You should always be testing out new carriers in your network and finding candidates for the next sourcing event.
- An event may even be able to find savings in a difficult seller’s market (but probably not in 2018), by re-allocating lanes among your network’s incumbent carriers and introducing non-incumbent carriers into your network.
Fresh rates in the routing guide improve tender acceptance, further reducing your exposure to unplanned freight budget increases and carrier service failures. In rising markets, annual procurement bids can help organizations better maintain their budgets and capacity levels while reducing the risk of spot market reliance. Finding the right mix of carriers who are able to provide the best price and service often requires outside expertise to help guide and manage the selection process. If you are unsure about how to approach the bidding process in a tight market, seeking the advice of those with years of experience conducting truckload sourcing events is the best course of action.
Chainalytics Transportation Senior Director Mike Hane has worked in the transportation software and consulting services field for over 20 years, 13 of those with Chainalytics. His main focus is helping companies take costs out of transportation networks while improving customer service. He has worked on over 100 projects across many industries in North America and Europe, primarily in sourcing, fleet/mode analysis, TMS improvements, and strategic network design.
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